Businesses haven’t had it easy over the past few years. Brexit, Covid, international crisis, inflation — they’ve all taken a chunk out of businesses, especially small ones.
The recent Budget has made things even more difficult. In a recent survey, nearly a third of business said that they believe they’ll need to make redundancies next year, with a similar number expected to be forced to default on debts.
What Has Caused This Situation?
Claire Burden, Head of the Advisory Consulting team at Evelyn Partners, considers that, “The cumulative impact of inflation over recent years is still hitting businesses hard. Many industries have not been able to pass on the full extent of their cost increases and this has left some firms fighting for their survival.”
The effects of October’s Budget — especially the rise in the employer’s National Insurance contribution and the increase in the Minimum Wage —have only multiplied the problems. Small businesses are facing a tripartite threat of lower consumer demand due to cost-of-living pressures; higher taxation and wage bills; and raw materials and goods costing more.
What Effect Is This Having on Small Businesses?
The effect of the extra pressure in the Budget, on top of existing issues, is likely to have two effects. In the first place, the National Insurance and pay rises are likely to be especially hard on labour-intensive businesses, such as the hospitality sector. It seems probable, as the survey suggests, that many of these will be making plans for redundancies in 2025.
At the same time, the general economic situation, combined with customers and trading partners finding it harder to settle their bills, will result in cash reserves being under pressure. This is likely to lead to debt defaults.
What Can You Do About It?
Claire Burden recommends a wide-ranging approach for businesses to increase their chances of keeping their heads above water. “Business owners need to urgently scrutinise their operating models and plans,” she advises, “to stay ahead in the challenging business environment. Businesses should prepare prudent forecasts and carefully consider their discretionary spending.”
This is certainly good advice. The most crucial way, though, to ensure your business’s balance stays in the black is to improve your credit control systems. While not every unpaid invoice may be recoverable, a great many will be, if you have a system to approach debtors with both determination and intelligence.
The key is to be able to understand the difference between the can’t-pay and won’t-pay debtors, and to have a strategy for each that’s most likely to see you paid as early as possible. That needs experience and expertise — so give me a call if you need help giving your business a chance to avoid being in that third facing redundancies and defaults.
